Checklist for Evaluating New Ideas and Ventures : Checklist for Evaluating New Ideas and Ventures Key Factors for Success Bruce Gjovig Entrepreneur Coach and Director Center for Innovation, Rural Tech Incubator


TECHNICAL EVALUATION: TECHNICAL EVALUATION Innovative product, not “me too” Competitive advantages, features, and benefits Barriers to competitive entry (hard to imitate) High quality Third-party test results Ability to deliver a consistent, quality product on time Spin-off, different market applications Environmentally safe No safety/health risks, regulatory control


MARKET EVALUATION: MARKET EVALUATION Competitive advantage “USP”: Unique Selling Proposition Differentiate on quality, service, or innovation Market Pull vs. Market Push Solves customer problems Sunrise vs. Sunset market


MARKET EVALUATION CONTINUED: MARKET EVALUATION CONTINUED Significant market niche Market plan/strategy Distribution channels available Repeat sales likely Year-round vs. Seasonal demand


Approaches to Differentiation: Approaches to Differentiation Prestige – Rolex, Mont Blanc Quality – Honda, Cadillac Top-of-the-Line image – Ralph Lauren, Cross Pens Innovative, technological leadership – 3M Corp. Engineering design and performance – Mercedes


Approaches to Differentiation Continued: Approaches to Differentiation Continued A different taste – Dr. Pepper, Listerine Product reliability – Johnson & Johnson baby products Superior service – Federal Express Full range of services – Merrill Lynch Complete line of products – Campbell’s Soups Spare parts availability - Caterpillar


Approaches to Differentiation Continued: Approaches to Differentiation Continued More for your money – McDonald’s, Wal-Mart Special features – Jenn-air’s indoor cooking tops Economy – GE’s miser light bulbs


ECONOMIC EVALUATION: ECONOMIC EVALUATION Premium, price possible for quality Competing on innovation, quality & service - not price Low up-front investment intensity Low overhead High value-added Business plan


ECONOMIC EVALUATION CONTINUED: ECONOMIC EVALUATION CONTINUED High productivity Minimum product liability Owners have financial commitment Management paid for performance, not title High Return on Investment (ROI) Realistic financial projections Good margins & profitability Good cash flow


MANAGEMENT EVALUATION(The most important criteria): MANAGEMENT EVALUATION (The most important criteria) Experienced in industry Entrepreneurial aptitude and attitude Results-oriented, bias for action Business experience and education Visionary leadership – sees “big” picture Business strategy is clear and concise


MANAGEMENT EVALUATION(The most important criteria): MANAGEMENT EVALUATION (The most important criteria) “Team” has experience and depth (Production, engineering, finance, marketing, management) Experienced consultants, advisors (Technical, business, legal, accounting) Outside accountability Board of Directors, investors, etc.


Five-Year Profitable Survivalof New Business: Five-Year Profitable Survival of New Business Profitable Marginal Failed Inexperienced, uneducated 8% 62% 30% Inexperienced, educated 25% 29% 46% Experienced, uneducated 25% 23% 52% Experienced, educated 61% 16% 25% Experienced, educated, planned 81% 12% 7%


RELATIVE MARKET SHARE IS CLOSELY RELATED TO PROFITABILITY: RELATIVE MARKET SHARE IS CLOSELY RELATED TO PROFITABILITY High Market Share Increases ROI


ROI INCREASES WITH MARKET SHARE RANK: ROI INCREASES WITH MARKET SHARE RANK Higher Market Share Increases ROI


Profit(Pre-Tax, pre-interest): Profit (Pre-Tax, pre-interest) Quality Increases Rate of Return


HIGH QUALITY PRODUCTS & SERVICES ARE MOST PROFITABLE (Less 12% cst of cap.): HIGH QUALITY PRODUCTS & SERVICES ARE MOST PROFITABLE (Less 12% cst of cap.) Quality Increases Rate of Return


Quality Customer ServiceBased on 3,000 businesses in all sectors of the economy. --Strategic Planning Institute, Cambridge, MA: Quality Customer Service Based on 3,000 businesses in all sectors of the economy. --Strategic Planning Institute, Cambridge, MA


Pay for Quality: Pay for Quality


Definition of “Quality”: Definition of “Quality” The customer’s judgment, not yours Both the product and the associated services Not absolute, but relative to competitors Does not include price Quality Index = Percent of sales from superior minus Percent of sales from inferior products


GOOD PRODUCTIVITY IS CLOSELY TIED TO HIGH ROI: GOOD PRODUCTIVITY IS CLOSELY TIED TO HIGH ROI High Productivity Increases Profitability


CAPITAL INTENSITY HURTS PROFITABILITY: CAPITAL INTENSITY HURTS PROFITABILITY


AS INVESTMENT INTENSITY RISES ROI DECLINES: AS INVESTMENT INTENSITY RISES ROI DECLINES Capital Intensity Decreases Profitability


Major Factors Causing High Profits: Major Factors Causing High Profits Strong Market Position Relative Market Share > 80% Low Investment Intensity Investment/Sales $60 K High Perceived Quality Quality > 50% Low R&D Marketing Expense Marketing + R&D/Sales < 10%


Major Factors Causing Profit Trouble: Major Factors Causing Profit Trouble Weak Market Position Relative Market Share 70% Low Productivity Value Added/Employee 15%


Percentage of New Produce Failures For Three Types of Businesses:Consumer, Industrial, Service: Percentage of New Produce Failures For Three Types of Businesses: Consumer, Industrial, Service


Percentage of New Produce Failures For Three Types of Businesses:Consumer, Industrial, Service: Percentage of New Produce Failures For Three Types of Businesses: Consumer, Industrial, Service


Product Lifecycle: Product Lifecycle 17-20 years – 1970 10-20 years – 1980 5-6 years – 1990 2-3 years – 2000 Less than 1 year for some products Need for constant innovation, improvement, new product development


3M: 3M 30% of sales from products introduces within last 5 years 10% real growth annually 10% profitability after taxes 27% return on capital investment 15% rule of time


New Products: New Products Need a champion Market test Get to market swiftly (market plan) First to market gains share, higher margins, etc. Sell benefits, not features Unique benefits – innovative, better, faster, etc.


Slide30: Some 37% of U.S. households include someone who has founded, tried to start or helped fund a small business. - Entrepreneurial Research Consortium


Small Business Success… : Small Business Success… 70% going after 8 years -Dun& Bradstreet survey of 800,000 small businesses started in 1985 80% fail in 5 years is myth!


Slide32: “Every Community will lose about 10% of its jobs each year – from acquisition, downsizing, death, retirements or other causes. About 55% of all new jobs are from expansions of existing local companies and nearly 45% of new jobs are created by startup companies. Less then 1% of net new jobs occur as the result of relocations.” -David Birch, Ph.D. Cognetics


Slide33: “Fast growth companies that utilize university resources boast productivity rates 59% higher than peers without a university relationship, as well as 21% higher annual revenues and 23% more capital investments. Private/public collaboration provides a strategic advantage for a significant number of high growth companies.” -1995 Coopers & Lybrand Study


Net new jobs come form…: Net new jobs come form… 66% employers of less than 20 80% employers of less than 100 50% less than 4 years old 1/3 generate 2/3 new jobs 80% of new sales


High risk Economy: High risk Economy Unemployment Low Real Wages – all time high Record Profits Export Growing 3x growth of economy BUT… 12% college graduates lost job since 1993 Corporate downsizing Job insecurity Economic uncertainty


Slide36: Growth Has been traded for Security Higher risk…higher reward


Strategies for Workers…: Strategies for Workers… High tech career -most growth, most turmoil Exporting company -pays 12% more on average Self-employed


Strategies for companies…: Strategies for companies… Reengineer, restructure -boost productivity, profits -cut costs Technological innovation Export in growth countries Invest in deregulated markets